10. Disruptive innovation

Application of competition law in the
sharing economy in the year ahead

It started off as an easy way to be able
to afford their San Francisco pad. With the internet providing access to
millions of potential renters, the creators of Airbnb had an immediate global
reach to market a couple of nights’ stay in a saturated hotel market. Ten years
later, Airbnb is outpacing large hotel groups in guest bookings. Its rapid
growth illustrates how traditionally infrastructure-heavy industries can easily
be disrupted if underutilised privately owned assets are put on the market in
competition with traditional goods or services. To disrupt, all that is needed
is a platform connecting supply and demand.

Traditionally, regulators have welcomed
platforms on the basis that they are meeting a consumer demand, thereby
increasing consumer welfare. Especially in sectors where demand and supply are
fragmented, e-platforms provide the immediate scale and reach at low cost to
allow new entrants to offer their services sustainably. However, in regulated industries,
such as the taxi and hotel industries, traditional market players perceive
platforms as not complying with local laws and regulations and thus competing
on an unfair footing. That raises another question regulators are grappling
with: to what extent is not complying with the law unfair competition by
nature, and could it by extension be an abuse of dominance?

With the public debate centering around how disruptive business models fit within existing regulatory frameworks, so-called disruptors risk facing moving regulatory goalposts, especially when they grow exponentially.

Rafique Bachour, Partner, Brussels

Disruptors on the other hand are
challenging existing regulations that deter, or potentially preclude, the entry
of new services to existing markets, claiming these are no longer appropriate
in an increasingly digitalised world. This forces legislators and policymakers
to rethink how public policy objectives are balanced against increased consumer
choice, and whether it is time to hit the ‘reset’ button on existing, and
potentially dated, policy objectives and
the expression of those policy objectives in legislation that is no longer fit
for purpose.

Most of the enforcement actions against
sharing platforms have until now been based on local laws and sector-specific
regulation, such as licensing or health and safety laws. However, competition
issues have been raised in situations where the platform influences the prices
suppliers charge for the products or services they are offering. A notable example
is the antitrust class action brought earlier this year against Uber’s
co-founder and CEO, Travis Kalanick, in the federal district court of New York.
The claimant alleges that Uber’s platform, and specifically the app which shows
the price for the journey, facilitates a conspiracy to fix prices among taxi
drivers. The mechanism by which such co-ordination is supposed to have taken
place is obscure to say the least. However, vertical arrangements between
platforms and their supplier partners do need careful consideration, as
outlined in Theme 5. Clauses harmonising prices, imposing fixed tariffs or
preventing suppliers from freely pricing their product or service may well come
within the ambit of antitrust laws.

Apart from blatant antitrust violations
such as price-fixing, antitrust regulators face the question of whether they
need to be concerned with competition within digital markets at all, when
competition for the market is what drives innovation. Arguably, market shares
are not relevant in markets that can be disrupted readily. That in turn begs
the question whether platforms underpinning the sharing economy constitute
entry barriers in and of themselves. Is there a tipping point creating network
effects so strong that competing platforms can no longer disrupt the disruptor?
And if so, are platforms behaving in ways to entrench their newly gained market
position to preclude competition from newcomers? This underpins a good deal of
the Big Data debate outlined in Theme 4.

We expect the antitrust notion of
potential competition and associated questions relating to the burden of proof
to become more prominent in many cases in the coming years. Under what
circumstances can a competition authority block the acquisition by an incumbent
of a promising new platform with limited turnover and market share and what
should be demonstrated to back up a legitimate theory of harm? What evidence
should be collected to demonstrate the market power of a digital platform on a
lasting basis? When should an agreement between two e-platforms to focus on
different areas be considered prohibited market sharing, because in the absence
of the agreement they could compete? And how will all these issues interplay
with the existing, and likely developing, regulatory environment that applies
to such industries?

We expect future competition cases to focus on potential competition, and, crucially, whether access to data is relevant for any competition analysis.

Winfred Knibbeler, Partner, Amsterdam

Use of data generated by e-platforms
enables regulators to base any antitrust investigation on actual information on
how consumers use the products and services (as well as competing products and
services). We expect regulators to tap into that more and to rely more on
behavioural economics when studying disruption to determine if consumer welfare
is served. In markets where disruptors have built a solid market presence, we
expect regulators to focus on ensuring these markets remain contestable, and
disruptors remain disruptable.

Looking ahead in 2017

Going forward:

the distinction between disruptors and incumbents will only become more blurred as disruptors capture large shares of the market, while incumbents fight for survival by extending their offerings in new business areas and evolving their product and service offering. Both are likely to face a changing and uncertain regulatory landscape, with moving goalposts as legislators are weighing in to protect the public interest;

there is, however, no clear indication that antitrust regulators will tackle the sharing economy in unexpected ways. Restrictive practices, such as price-fixing or resale price maintenance, as well as abuses of dominance will continue to face scrutiny – whether in the physical world or online.